SAN FRANCISCO — The state Public Utilities Commission today scrapped its 50-year-old system of regulating telephone rates and adopted a new plan tying rates to inflation, encouraging new technology and promising Pacific Bell customers a rate decrease.
"Local telephone companies are becoming more like competitive businesses and should be treated that way," commission President G. Mitchell Wilk said before the new system was approved on a 5-0 vote.
Pacific Bell and GTE California, the other company affected, both praised the plan. A consumer group, Toward Utility Rate Normalization, called it "a dangerous ride down an unmapped road."
The plan, effective next year, is part of an overall policy by PUC members, appointed by Gov. George Deukmejian, to loosen some of its traditional regulation and scrutiny of management decisions by utility companies in telecommunications, energy and transportation.
Current phone rates are based on the commission's determination of major phone companies' revenue needs, based on its costs, efficiency and the state of the economy.
Under the new system, rates will be changed annually according to this formula: A federal inflation index called the Gross National Product Price Index will be reduced by 4.5%, based on the assumption that phone companies can increase their productivity by that amount each year.
For example, if inflation is 4.8%, the figure shown by the index this past March, the rate increase would be 0.3%.
The companies' basic rate of return on investment will be set at 11.5% as of Jan. 1. Carl Danner, an aide to Wilk, said the result will probably be a rate decrease of $100 million or more for Pacific Bell next year and probably little change for GTE, which had a 20% rate cut last year.
If a company increased its efficiency to earn a higher rate of return, stockholders could keep all amounts up to 13%. Additional earnings up to 16.5% will be split 50-50 with ratepayers, and any amounts above 16.5% will belong to ratepayers.
Sometime next year, the $1.20-a-month charge for touch-tone telephone service will be eliminated, and the free local calling area will be expanded from eight to 12 miles.
The PUC said Pacific Bell will be allowed to spend $405 million to modernize its system over the next three years so that 950,000 customers will have access to services they lack.